Purchasing Land

[Wa77o]

Hi all,

I'm new to these forums and property investing, I'm from Bunbury, WA (southwest) and the properties here have spiked dramatically in the past few years (quite like Perth). I believe Bunbury has also been awarded the fastest growing city in Western Australia .... there are at least 3-4 subdivisions going on at the moment expanding outwards.

I currently live with the parents and have been saving generally towards a house deposit, this is easy due to practically no living expenses. From initial web based calculators based on my salary and current interest rates it seems a mortgage at the moment wont allow me to purchase anything worthwhile to live in or rent out.

There are currently blocks going for sale in central Bunbury, basically within 50m of two different sporting grounds (local footy, cricket, soccer etc). These blocks are within 1min drive to town and other shopping centers + fast food etc. The blocks range from 400 to 600sqm, priced from 187 to 255k, i am currently awaiting more information from the real estate agent.

I am going to see a mortgage agency later this week to see where i stand with mortgages etc. But i was wondering if the following is possible;

I would like to purchase a small block (187k hopefully). Put down a deposit of around 20k, plus with my 7k home owners grant i believe i would be owing approx 160-165k. The payments for this over a 30yr period would be approximately $300 a week, which is easily affordable for me due to my current living arrangements. I am currently putting away savings of $900 $1000 per fortnight and have a pay rise due at the end of the financial year.

I figure if i repay more money back (450-500 apposed to the minimum 300), within 2-3 years i could be down to 120-130k owing and i could either sell the land (hoping that its value has increased), or alternatively build a small 3x2 house by extending/refinancing my current loan by 170-180k (with one of those house package deals).

In principal i see this as being a good idea, given the high house prices at the moment. However due to my lack of knowledge in the market, there might be obvious problems with it? Basically i don't want to over extend myself, or don't want to get myself into a situation where i cannot afford repayments or the house has all these hidden costs that add up to 20-30k over my budget etc. Any comments appreciated

 

[Dazz]

I currently live with the parents and have been saving generally towards a house deposit, this is easy due to practically no living expenses. From initial web based calculators based on my salary and current interest rates it seems a mortgage at the moment wont allow me to purchase anything worthwhile to live in or rent out.

The payments for this over a 30yr period would be approximately $300 a week, which is easily affordable for me due to my current living arrangements. I am currently putting away savings of $900 $1000 per fortnight and have a pay rise due at the end of the financial year.

Any comments appreciated

Hello 770.....are you serious ?? What is your definition of 'worthwhile' ??

Living at home with your parents earning what you are on, happy to sacrifice your ability to stand on your own two feet, and happy to sacrifice your parents privacy and latter years whilst a capable earning adult doesn't seem right to me. However, I seem to be in the minority on this point. Most youth and parents of the youth don't have a problem with the situation, so maybe I'm just a fuddy duddy in my attitude.

Perhaps you are judging the standard of accomodation sought with the frame of reference you have now whilst living at home with the parents, who have probably worked 30 years to attain that standard.

We started out in a grotty 3 bed house in a grotty suburb right under the flight path. Felt like a palace.....'cos it was ours.

Maybe lower your expectations of what is "worthwhile", unburden your parents, grab some independence and real life adult responsibility and go from there.

 

[Wa77o]

Funny, i came here to research/talk investments, not for people to 'nitpick' my living arrangements of which they don't have a clue about. Not really the best of greetings to the message boards.

Now i do happen to agree with you on my expectations, yes they may be a little high. So with this in mind do you see my idea of being too complicated/high risk and should try for something simpler like purchasing a small 2/1 unit?

 

[Dazz]

Funny, i came here to research/talk investments, not for people to 'nitpick' my living arrangements of which they don't have a clue about. Not really the best of greetings to the message boards.

Apologies 770. I was way out of line and should not have commented.

 

[geoffw]

Wa77o

We started out that way- buying a block of land because it was too expensive to buy a house.

However, if you are looking somewhat in that direction, could I suggest that you look at some figures to do:

1. Buy the block (as you were doing)
2. Build a decent house ASAP
3. Get a tenant ASAP

The difference that will make?

1. You have somebody else helping to pay back the loan. Repayments on a block of land by itself will probably (possibly?) be higher than repayments on a block + house - rent from tenant.
2. Interest payments on the loan for the land now becomes tax deductible- as does depreciation on the house. (As long as you buy the block with the intention of building a house for rental, my understanding is that the interest payments become deductible immediately- seek professional advice).

And please don't go to see "just" a local mortgage agency. If what I am suggesting appears at all good to you (and, after all, this is a property investing forum) consult a mortgage broker who knows investment properties. I don't think any of our resident brokers are in Perth, but there are many IP experienced brokers here who could give you some excellent advice.

 

[chrispy]

Thats how we started, bought a block of land (in 1963) and while we were paying it off, levelled it by hand and owner built our first home, it took us 2 years but when we moved in we owned it. It certainly wasn't finished for quite a while. The noggings held the soap in the shower for quite a while.

Just a point, if you buy the land as far as I am aware you will not qualify for the first home owners grant until you build the house.

Chris

 

[Timmy]

Oh Dazzling, that's gold!

Despite the fact that your comments highlight your arrogant, pretentious and holier-than-thou attitude, it made me laugh out loud.

I've yet to see a better annihilation of a forum newbie (in this forum anyway).

(And the way you're able to relate any topic to your own successes is second to none.)


Allow me to try and make a better impression with the new forumite (keeping self indulgent comments to a minimum).....

I'm new to these forums and property investing, I'm from Bunbury, WA (southwest) and the properties here have spiked dramatically in the past few years (quite like Perth). I believe Bunbury has also been awarded the fastest growing city in Western Australia .... there are at least 3-4 subdivisions going on at the moment expanding outwards.

Welcome to the forum, it is for the most part a wonderful source of knowledge. WA's median house prices have gone crazy in the last couple of years, no doubt about it.

I currently live with the parents and have been saving generally towards a house deposit, this is easy due to practically no living expenses. From initial web based calculators based on my salary and current interest rates it seems a mortgage at the moment wont allow me to purchase anything worthwhile to live in or rent out.

You're certainly a lot smarter than most people in your situation. The fact that you're thinking about a house, instead of a car, or something else that will depreciate is commendable. And it's fantastic that you've done some research too.

By "worthwhile", I assume you mean something that is at least "average" in the area. Eg. houses in the area might be selling for $400k+, but you don't quite have this buying power. This is not something to get upset about, but simply something to be aware of. There are always going to be properties out of your price range, no one can afford everything. So just perhaps look at something else, instead of the 4BR family home in your area.

There are currently blocks going for sale in central Bunbury, basically within 50m of two different sporting grounds (local footy, cricket, soccer etc). These blocks are within 1min drive to town and other shopping centers + fast food etc. The blocks range from 400 to 600sqm, priced from 187 to 255k, i am currently awaiting more information from the real estate agent.

I've seen lots of research that suggests that a piece of land will often show more capital growth (higher %) than a piece of land with a house on it. So land is definitely not something to dismiss.

I am going to see a mortgage agency later this week to see where i stand with mortgages etc. But i was wondering if the following is possible;

I would like to purchase a small block (187k hopefully). Put down a deposit of around 20k, plus with my 7k home owners grant i believe i would be owing approx 160-165k. The payments for this over a 30yr period would be approximately $300 a week, which is easily affordable for me due to my current living arrangements. I am currently putting away savings of $900 $1000 per fortnight and have a pay rise due at the end of the financial year.

I figure if i repay more money back (450-500 apposed to the minimum 300), within 2-3 years i could be down to 120-130k owing and i could either sell the land (hoping that its value has increased), or alternatively build a small 3x2 house by extending/refinancing my current loan by 170-180k (with one of those house package deals).

Once again, fantastic that you've done some numbers and thought about these things. Let me make a few comments.

You seem to be looking at loans from a P&I point of view. This is not necessarily wrong, but a piece of land (or a house & land) is likely to appreciate in value whether you pay back any principle or not. Some people suggest that you never, ever pay any principle back. But it's really a personal preference. Paying back a loan certainly beats a term deposit.

Also, buying a piece of land doesn't offer much cashflow (ie. none). Although it might seem more "affordable" from a borring point of view from a repayment perspective (because the pieces of land you are looking at are cheaper than a house & land), the land might be the more expensive option. Because there is simply no rent (or tax deductions) helping you to pay the loan costs. Consider something with a tenant. And banks will also be more generous if you've got someone else helping with the repayments.

In principal i see this as being a good idea, given the high house prices at the moment. However due to my lack of knowledge in the market, there might be obvious problems with it? Basically i don't want to over extend myself, or don't want to get myself into a situation where i cannot afford repayments or the house has all these hidden costs that add up to 20-30k over my budget etc. Any comments appreciated

You make another good point. People do often overextend themselves, even with investment properties. Do something that you feel comfortable with. But don't limit yourself to a single asset class in a certain area. There's nothing stopping you from purchasing something further away (or even interstate).

Someone once said, don't wait to buy property, but buy property and wait. These are not my comments, because prices will do what they do, regardless of one person's opinion. But it's something to ponder.

Anyways, hope this helps.

 

[Dazz]

Oh Dazzling, that's gold!

Despite the fact that your comments highlight your arrogant, pretentious and holier-than-thou attitude, it made me laugh out loud.

One tries to do one's best....


I'm intrigued being labelled arrogant and pretentious, but I'm happy to wear the tag if you wish to place it on me.


My elderly industrial Mentor calls me timid and shy.
My colleagues and partners used to chastise me as mild mannered.
The experienced investors who I used to mentor called me confident.
The people who had absolutely no clue whatsoever always labelled me as arrogant.

 

[Timmy]

And the way you're able to relate any topic to your own successes is second to none.

My elderly industrial Mentor calls me timid and shy.
My colleagues and partners used to chastise me as mild mannered.
The experienced investors who I used to mentor called me confident.
The people who had absolutely no clue whatsoever always labelled me as arrogant.

self-in·dul·gent [self-in-duhl-juhnt]
–adjective
1. indulging one's own desires, passions, whims, etc., esp. without restraint.

 

[geoffw]

Timmy

Can you please moderate your language to other members. Your language to Dazzling was rude and insulting. Please be more careful in future.

 

[Dazz]

Sticks and stones
- common phrase

1. ineffective on members of the population over the age of 8

 

[daviddanae]

Timmy

Can you please moderate your language to other members. Your language to Dazzling was rude and insulting. Please be more careful in future.

Good post geoff,

If there were more people with Dazzling's experience and knowledge, willing to voice there opinions on this forum i would probably visit this site 50 times a day instead of only 20!

Keep up the good work Daz.

 

[alexlee]

Reality is what is is, Wa770. Of Perth prices move away from your requirements (whatever they are) then you have to face reality and either rent or buy something that is below your current wants.

However, with regards to your situation, it might be an idea to rent somewhere in Perth, and then buy somewhere else. You don't have to be limited to Perth. In the mid 200s there are decent properties in Brisbane, Adelaide or even Melbourne.

You should consider that a property doesn't have to be 'worthwhile' according to you if you make it an IP. It will be worthwhile to SOMEONE, depending on the rent. I have an IP in Perth that I personally would not live in, but someone does and he seems to be happy there. Buy according to your 'wants' when you have lots of money for you PPOR, by all means, but while starting out, think about what you can afford, not what you want.
Alex

 

[alexlee]

Timmy

Can you please moderate your language to other members. Your language to Dazzling was rude and insulting. Please be more careful in future.

Second that. Good post, Geoff.
Alex

 

[alexlee]

Funny, i came here to research/talk investments, not for people to 'nitpick' my living arrangements of which they don't have a clue about. Not really the best of greetings to the message boards.

Now i do happen to agree with you on my expectations, yes they may be a little high. So with this in mind do you see my idea of being too complicated/high risk and should try for something simpler like purchasing a small 2/1 unit?

On this forum, you get both technical investment talk and discussions about your personal habits, etc. Why? Because your personal habits are what will determine your future success as an investor. Having the best technical skills mean nothing if you don't have the personality and habits to put them to use.

I lived at home until I was 22 so I can't talk, but re your IPs, if you only buy IPs that you will live in yourself, I think you'll slow yourself down. Especially at the start, when you simply won't be able to afford anything near what your parents live in. This is not just a Perth thing: it's every city. While Perth prices are high, remember Perth salaries are also high too.

I bought my first IP in Brisbane for $170k because I thought I couldn't afford anything in Sydney (I was on $35k at the time). I never planned, and never plan to, live in that IP. Doesn't matter, because it was rented, has grown, and I've used it to buy more.

It may not be the best of greetings, but I like to think we deal with reality here. You want to learn from those who have done it, and most people here have done it. If we sometimes seem harsh, take it as an indication that reality can be harsh as well.
Alex

 

[want2bewealthy]

Hello 770.....are you serious ?? What is your definition of 'worthwhile' ??

Living at home with your parents earning what you are on, happy to sacrifice your ability to stand on your own two feet, and happy to sacrifice your parents privacy and latter years whilst a capable earning adult doesn't seem right to me. However, I seem to be in the minority on this point. Most youth and parents of the youth don't have a problem with the situation, so maybe I'm just a fuddy duddy in my attitude.

Perhaps you are judging the standard of accomodation sought with the frame of reference you have now whilst living at home with the parents, who have probably worked 30 years to attain that standard.

We started out in a grotty 3 bed house in a grotty suburb right under the flight path. Felt like a palace.....'cos it was ours.

Maybe lower your expectations of what is "worthwhile", unburden your parents, grab some independence and real life adult responsibility and go from there.

I totally disagree,
he is going to be alot more wealthy if hes smart about it than he would be paying $260.00 a week for a rented unit.

I admire his parents for this.

Ive been out on my own since 14, my parents would not let me live in the caravan, they said there wasnt enough room..
Yes, my parents are poor, with the attitude of the poor dad, not the rich dad,
If you know what I mean

I dont want to sound like a whining idiot but
I struggled pretty hard, living in caravan parks, youth hostels, blah blah blah,
If I was a parent, I would look after my kids, looking out for their best interests as long as I didnt mind, some parents like having the family close to talk to and make the most of their relationship, I wish I had a chance to do that but you cant choose your family..

Think about it, even 2 extra years of living at home and a strict savings plan will get you very far in the long run, each to their own though.
If he was living at home, taking drugs and sitting on the dole, It would be a different story.

 

[HandyAndy888]

Buying a block of land for that sort of money as your first IP...with no intention to create CF, is an "interesting" move. I would much rather see you putting your first set of finance towards a 3brm house that will create income..wait a bit, use the equity and so forth...with land, you will "lock yourself into" a large repayment mortgage that is being serviced by you only...think medium term... for your first investment. My 23.5 cents worth...

Land prices above $150,000, as far as i can see around Brisbane anyway, are not moving very well.

Also be careful of covenants...